The red hot real estate market we’ve seen here in Texas over the past few years may finally be cooling off. After a boom during the peak of the pandemic era, complete with bidding wars and huge price increases, homes now appear to be remaining on the market longer. Prices are no longer rising like they have been, and some places are even selling price cuts as sellers try to attract buyers in the shifting market.
Adam Perdue, research economist for Texas A&M University’s Texas Real Estate Research Center, spoke with the Texas Standard about what’s driving the trends, and what we can expect to see moving forward. Listen to the interview above or read the transcript below.
This transcript has been edited lightly for clarity:
Texas Standard: The Texas housing market, at least by some measures, appears to be cooling. But what do the numbers tell us? What does the market actually look like statewide right now?
Adam Perdue: The market is definitely cooling from the overheating that we’ve seen in the last couple of years. The rate of price increase is moderating year over year. And we have started to see some kind of monthly price falls in the last month or two. And then also fewer houses are selling.
Well, now, of course, a lot of that increase in home prices seems to be fueled by the large number of folks migrating to Texas, especially from other states. I think California was getting a lot of attention for that in particular. Has anything about that dynamic changed?
Well, actually, migration to Texas has been kind of a long-term trend. Austin may have hit kind of a limit on building, and so that’s why they saw oversized price increases relative to the rest of the state. The real impetus for the price increases over the last two years was the Fed – the Federal Reserve cutting rates to keep us out of a recession in 2020.
Well, of course, that has reversed. And I suppose people are looking much more closely at, how much the long term costs are of buying a house right now?
Yes. Now that we’ve recovered our employment levels and our economy seems to be overheating to some extent, we’re starting to see significant inflation, which the Fed is going to try to control by raising rates. And that increase in rates, and inflation in and of itself, has increased mortgage rates that everybody’s going to have to pay on their houses. Which basically means that nobody can afford as high of a price as they could have two years ago.
How much of a factor is it that we’re seeing more and more houses being built? New construction has certainly picked up in recent months.
Well, that’s actually going to be a factor. So new construction kind of responded, even back in 2020, in permitting and starts. But they’ve been undergoing the same kind of supply constraints that you’ve heard about in the rest of the economy – having a hard time getting windows and faucets and that kind of knickknacks that we need to complete a house. And so that has been significantly backlogged. And that is going to help ease pricing as those units finally finish their construction as supply constraints ease.
Well, as we move toward, say, 2025 – I know that’s rather long term – but what’s your calculation about trends. Should we expect these trends to continue?
Here at the data center, our forecast for housing price increases over the next few years is definitely a significant moderation from the rates that we’ve gotten used to on a year over year basis. As of right now, we’re still talking 10 to 15% year over year price increases. And so we still expect that to moderate at least back to what we typically would expect. Normal price appreciation year over year was about 2 or 3, maybe 5% depending on the year and the metro. And so we definitely expect to fall back to that kind of price appreciation and even lower because just with the new supply and the mortgage rates should slow us down a little bit over what’s normal. And so the basic prediction here at the center is that we think price appreciation for the next few years on a year over year basis should fall to zero, or slightly positive or slightly negative.